Westminster Policy Forum, London 15 March

As much of the UK’s ageing fleet of power plants approaches the end of its lifetime and coal plant closures are accelerated by environmental legislation, a significant hole is appearing in the country’s electricity supply. Meanwhile, the first of the new nuclear plants intended to help meet this shortage, Hinkley C, is very publically embroiled in technical and financial uncertainties, and the market has so far failed to encourage investment in new gas-fired plants. With concerns over the potential for future winter blackouts becoming more and more audible, security of supply has been identified as the number one energy priority for the current government and also formed the topic of lively debate at a Westminster Policy Forum I attended on Tuesday.

In the face of this unhappy outlook, the seminar presented a series of relatively optimistic presentations which emphasised the growing role of a ‘smarter’ grid based on the increasing use of flexible demand, energy storage, and interconnections with neighbouring countries. This approach has been touted in a recent report by the National Infrastructure Commission which claims the country could save up to £8 bn per year, but dramatic changes are required in how both the transmission grid and market for electricity are operated. One of the most promising and technically ready pieces of the puzzle is known as demand-side response, in which commercial and industrial electricity consumers are paid to turn down certain processes at times of energy shortage, using automated hardware installed on each piece of powered equipment. A presentation by KIWI Power, a rapidly expanding provider of this technology, gave the example of the Marriott chain of hotels turning down their heating by around one degree for a short period to provide significant savings. Once regarded as something of an emergency measure, demand-side response is already more widely used in some other developed countries, and is increasingly being seen as an intelligent means of optimising the use of intermittent renewable power.

Whilst smarter use of electricity and highly distributed grids must play a role in the future, the electricity ultimately needs to come from somewhere. It is clear that the current government has envisioned a future in which the country’s baseload is supplied by new nuclear plants, on top of which an ever increasing proportion of intermittent renewable sources (such as new offshore wind farms) is balanced by highly flexible generation such as natural gas combined cycle plant. However, it is the nature of this flexible component which seems to currently hold the most uncertainty. Until the eleventh hour cancellation of carbon capture and storage (CCS) demonstration late last year, this technology was considered the candidate of choice for providing low carbon, flexible power, whether from gas or coal. Speaking at the event, the director the CCS association emphasised how this decision has essentially put the nascent industry back to square one and destroyed investor confidence, although also noted that CCS is still eligible for the contract for difference subsidy scheme and a handful of UK projects remain nominally active. Amidst much backlash against the CCS cuts, the Energy Technology Institute have recently calculated that meeting carbon emission targets without the technology will cost £1-2 bn/year from 2020, rising to £5 bn/yr by 2040.

Energy storage technologies have become the great hope for providing the system with this flexibility in the absence of CCS, and come with a much better image, having the vocal support of renewables lobbies and environmental organisations. Although this approach is undoubtedly less technically ready than CCS, global research efforts are making rapid reductions in the costs of batteries in particular. A smart grid will need a suite of different energy storage technologies which were briefly summarised by Professor Nigel Brandon of Imperial College, ranging from the bulk storage of wind power surpluses by liquefying air or generating hydrogen gas, to rapid, smaller-scale storage by batteries for localised grid balancing. However, in an argument somewhat reminiscent of those made by the CCS community, the electricity market is not currently designed to properly reward the ‘system value’ of storage, which acts merely as flexible backup for balancing the grid.

Whether CCS or more energy storage is eventually deployed to meet the UK’s longer term carbon emission goals, gas power plants are the only technology which can be deployed quickly enough to meet impending energy shortfalls. Driven by US shale gas production, low global gas prices are making this option increasingly attractive, and the government is clearly keen to launch the UK’s own shale revolution in the coming years. With an increasingly renewables-rich grid making for limited running hours and low wholesale power prices, investing in any kind of power plant is an unappealing prospect at the moment. To counter this, the UK launched a capacity market in 2014 in which power plants bid to guarantee a certain output in times of need, in return for steady compensation. Unfortunately, rather than encouraging investment in relatively clean gas plant, the initial auction led to a series of small-scale diesel generators which are harmful for local air quality. A representative from the department of energy and climate change outlined how new reforms to the capacity market will try to force the government’s desired result, primarily by making more contracts available further in advance and penalising successful bids which fail to deliver.

The buzz over smart power was continued in the chancellor’s budget announcement the following day, with £50 million pledged towards developing demand-side response and energy storage technologies, and strong support outlined in the policy paper. The appeal of these solutions is clear, and even costly investments in storage demonstrations and the grid infrastructure seem likely to fair better than the CCS demos which never truly won widespread support. Nevertheless, a smarter grid will not meet the UK’s pressing energy shortage alone, and in the short term we can expect to see the rather less appealing prospect of life extensions for old nuclear plant and frantic building of new gas plant that will eventually require CCS if carbon targets are to be met. The task at hand for the electricity sector is even more daunting when taking into account that the eventual aim is to electrify heating and transport – calling for an enormous increase in the nation’s generation capacity.